(Bloomberg) -- European stocks edged higher on Friday to cap their best year since 2021 as optimism for central bank pivots fueled a strong year-end rally.

The Stoxx Europe 600 closed the final trading session of 2023 up 0.2%, taking yearly gains to about 13%. Consumer products and media stocks outperformed in daily trading, while real estate lagged. The UK stock market closed early for the last trading day of 2023, underperforming other benchmarks in the region with a 3.8% gain for the year.

Among other countries, Italy and Spain outperformed this year while Germany’s DAX Index rose 20% — its best year since 2019. For individual stocks, Novo Nordisk A/S was the biggest gainer on the Stoxx 600 by points amid hype around weight-loss drugs, followed by chip-equipment maker ASML Holding NV, German software firm SAP SE and UK lender HSBC Holdings Plc.

European stocks have advanced with global equities this year after a dismal 2022 as investors grew confident that central banks will cut interest rates next year. Cooling inflation and regional economies avoiding major contractions have also lifted sentiment, outweighing concerns about China’s uneven recovery.

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Among sectors, retail, technology and construction outperformed in 2023, erasing last year’s losses as fears of higher interest rates eased. Meanwhile, banking shares also outpaced the benchmark with a 20% gain, rebounding from a selloff in March amid the Credit Suisse crisis. The only two sectors in the red were food, beverage and tobacco and basic resources.

Even as European stocks gained this year, they still trailed US peers which benefited from a stronger-than-expected economy and developments in artificial intelligence pushing them to a rally which blindsided some of Wall Street’s biggest forecasters.

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Strategists are mixed in their outlook for Europe next year. Teams at Goldman Sachs Group Inc. and Citigroup Inc. see the Stoxx 600 at a record high by the end of 2024 amid peaking interest rates. Meanwhile, Bank of America Corp. strategists see the benchmark sliding 18% by mid-2024 as current positive factors fade, while Societe Generale SA counterparts expect it to fall about 6% by year-end amid the risk of a slowdown.

“European markets can rise further through the year, helped by lower policy rates, lower energy prices and some growth stabilization in China,” said Rajeev De Mello, a global macro portfolio manager at Gama Asset Management SA.

He also sees a record on the cards in 2024, but not a repeat of the same strong performance of this year. “I am only moderately bullish as the effects of past monetary tightening are still filtering into the economy while government budgets will be tightened,” De Mello said.

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(An earlier version corrected the index name in second paragraph.)

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